Mid-Year Review

After a Tepid 2017, M&As Are Back in the Fast Lane

By Michael Collins

The pace of mergers and acquisitions (M&A) activity in the door and window industry has increased markedly versus last year. Through the first eight months of 2018, there were 16 transactions that involved at least one U.S.-based door or window manufacturer (this excludes purely international transactions). We tracked only nine transactions throughout all of 2017, making this year’s pace a definite improvement.

In 2017, it was Jeld-Wen that dominated acquisitions, with five transactions, including its own initial public offering. And while Jeld-Wen has been active again this year, with two more acquisitions, Ply Gem has to be viewed as the clear takeaway in 2018. At the beginning of the year, Clayton, Dubilier and Rice announced the dual acquisition and merger of Ply Gem and Atrium Windows. Do not under-estimate the mammoth task that rep-resents getting all of the constituents and stakeholders for two major companies rowing in the same direction and for long enough to complete a merger like this. Add to that the complexities of a go-private transaction and this was an impressive deal.

Not content to rest on its laurels, Ply Gem then merged with NCI Building Systems at the beginning of summer, to create a $4.5 billion industry giant. Had they stopped there, Ply Gem would still have been the most impactful M&A participant in 2018. But in August, Ply Gem continued its streak by buying Andersen Corp.’s Silver Line division. Silver Line represented the “good” in Andersen’s good, better, best strategy and we believe that the brand’s reputation and operations improved under its ownership, making it an attractive acquisition tar-get. Whether or not it undertakes any additional acquisitions in the near future, Ply Gem already has risen as a force not to be ignored just over the past year.

Expanding Upward and Outward

Another transaction of note is PGT Innovation Inc.’s acquisition of Western Window Systems. If you listen to a quarterly PGT earnings call, you’ll hear the analysts who follow the company’s stock (NYSE: PGTI) ask what they’re doing to move beyond Florida. That’s because, while Florida is perennially among the strongest housing markets in the country, investors want diversification in a company that size. PGT’s acquisition of Western Window Systems is a bold answer to that request. Western takes PGT to states as distant as California, Texas, Arizona, Nevada, Oregon and Washington, expanding the company across the entire Sun Belt—even to Hawaii—in one fell swoop. Meanwhile, given the company’s past appetite for acquisitions, we would be surprised if future acquisitions didn’t find PGT climbing the industry revenue rankings even farther.

Other door and window transactions this year followed the trend of the past few years for acquiring manufacturers of high-end products. This included Andersen’s acquisition of Heritage Windows and Doors. Viewed in tandem with their divestiture of Silver Line, this acquisition could be taken as an increased bet by Andersen on the high-end market. Arcadia made the same bet, with its acquisition of Metal Window Corp. as did Tower Arch Capital when it picked up Panoramic Doors.

Fresh Opportunities

While 2017 was a somewhat tepid M&A year in this industry, 2015 and 2016 were much stronger, with 21 and 16 acquisitions, respectively. Combined with 2018, one might wonder when this consolidation will come to an end, or whether there will eventually be no companies left to acquire. Interestingly, a successful industry like ours rewards upstarts with strong growth and this converts yesterday’s new ventures into tomorrow’s growth acquisition stories. The demographic profile of the typical door and window manufacturer owner indicates a person who is closer to retirement than they are to making that next big financial bet on their own company. Meanwhile, entrepreneurs always want to see their companies charge that next hill, create those new products, or enter new markets. In addition to making the company more valuable, such strategies provide opportunities for employees to grow, expand and advance. In our experience with individuals who sell their companies, 100 percent of them cite concerns with the health of their company and the wellbeing, compensation and opportunities open to their employees. The motivation to sell a company has nothing to do with a decline in those concerns and everything to do with wanting to find a new partner with fresh ideas and capital to help take a company to the next level. And, as long as that sentiment prevails, door and window M&A activities should continue at a solid pace.

Micheal Collins is an investment banker and a partner in Building Industry Advisors. He specializes in mergers and acquisitions in the door and window industry.

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DWM Magazine

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